Does the estimated return to education now depend positively on parent education?.
both parent Show more The following model allows the return to education to depend upon the total amount of both parents education called pareduc: log (wage) = B0 +B1 * educ + B2 * educ * pareduc + B3 * exper + B4 * tenure + u (i) Show that in decimal form the return to another year of education in this model is ?log(wage)/?educ = B1 + B2 * pareduc. What sign do you expect for b2 ? Why? (ii) Using the data in WAGE2.RAW the estimated equation is ^log(wage ) = 5.65 + .047 * educ + .00078 educ*pareduc + (.13) (.010) (.00021) .019 exper + .010 tenure (.004) (.003) n = 722 R^2 = .169. (Only 722 observations contain full information on parents education.) Interpret the coefficient on the interaction term. It might help to choose two specific values for pareducfor example pareduc 5 32 if both parents have a college education or pareduc 5 24 if both parents have a high school educationand to compare the estimated return to educ. (iii) When pareduc is added as a separate variable to the equation we get: ^ log(wage) = 4.94 + .097 * educ + .033 * pareduc .0016 educ*pareduc (.38) (.027) (.017) (.0012) + .020 * exper + .010 * tenure (.004) (.003) n = 722 R^2 = .174. Does the estimated return to education now depend positively on parent education? Test the null hypothesis that the return to education does not depend on parent education. Show less
Does the estimated return to education now depend positively on parent education?
